Communications Policy for 2006 and Beyond: VoIP as a Case in Point

In this article, published in the Federal Communications Law Journal (FCLJ), the authors (Reed E. Hundt and Gregory L. Rosston) have proposed sweeping changes to the current telecommunications regulatory regime. With impending reform in telecommunications laws, the authors argue that an important first step is the creation of a bipartisan, independent commission to examine and recommend implementation of more market-oriented communications policy. The following excerpt from the article looks into service competition with respect to VoIP:

Much regulatory angst and competitive fervor is currently engendered by the 4 letters—VoIP. VoIP, Voice over Internet Protocol, is a way of transmitting voice calls as data packets over the packet-switched Internet data network, which is an alternative to routing voice calls as circuits witched calls over the telephone network. Companies like AT&T, Vonage, Packet 8, and Skype are providing VoIP services. The incumbent telephone and cable companies are also initiating VoIP offerings. These generally offer a host of features along with attractive long distance calling plans.

In the future, a larger portion of voice communications will be part of the Internet data stream, along with music and movies. So in this sense voice will go over the Internet, using Internet protocols to describe beginning and ending calls, and to pick the route of the traffic on the way from originator to terminator. Because voice traffic uses only a small amount of bandwidth, especially compared with applications like music and movies, the marginal cost of VoIP voice traffic is likely to be extremely low.

State regulators fear VoIP because, as currently priced and regulated, it threatens the sources of funding for universal service programs. Incumbent telephone service providers view VoIP both as a threat and as an opportunity. The threat is to their existing businesses; the opportunity is in selling new services and having the ability to avoid entrenched regulations.

Instead of treating VoIP as a threat, regulatory authorities should view it as an opportunity to reformulate the existing regulations that do not serve the purposes of efficiency and social welfare. Instead of trying to push VoIP into the tent with historic switched access service and the attendant inefficient access charge regime, regulators should explicitly and rapidly rule out access charges for all traffic and move to a more efficient method for revenue collection.

A revamped system would remove the fears of the regulators and enhance the opportunity for providers and more importantly for consumers. By setting a stable system that focuses universal service revenue and cost in a directed system, the threats from arbitrage would be minimized. In addition, the need for extensive programs would be reduced. In all, while regulators would oversee smaller programs, these programs would be more stable and more effective at achieving the goals of universal service.